Determinants of Property Prices in Hong Kong SAR: Implications for Policy
IMF Working Papers, November 1, 2011
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- Determinants of Property Prices in Hong Kong SAR: Implications for Policy
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Bibliographic details
- Authors: R. S Craig, Changchun Hua
- Published: November 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463925949.001
Summary and research question
- This paper uses an econometric model of residential property prices in Hong Kong SAR to assess the effectiveness of alternative policies in slowing the increase in property prices.
- The rapid rise in property prices is well explained by macroeconomic fundamentals listed below.
- Policy channels considered: land supply, prudential policy (loan-to-value ratio, LTV), and tax policy (stamp duty on property transactions).
Key determinants identified by the model
- Real GDP per capital
- Real domestic credit
- Construction costs
- Land supply
- Real interest rate
Main empirical findings
- The rapid rise in property prices is well explained by macroeconomic fundamentals: real GDP per capital, real domestic credit, construction costs, land supply, and the real interest rate.
- Land supply is the most effective policy instrument for restraining property price increases but it operates with a significant lag.
- A tighter loan-to-value ratio (LTV) on lending and a stamp duty on property transactions dampen speculative activity that drives up property prices.
- While LTV restrictions and stamp duties can slow the increase in the short run, they should be guided by their long run objectives of financial stability and counteracting speculation.
Policy implications and recommendations
- Prioritize adjustments in land supply to restrain property price increases, recognizing the significant implementation lag.
- Use prudential measures (tighter LTV ratios) to dampen speculative mortgage-driven demand in the short run.
- Use transaction taxes (stamp duty) to reduce speculative activity in property markets.
- Design short-run interventions (LTV, stamp duty) with explicit long-run objectives of financial stability and counteracting speculation.
Methodology and technical features
- Employs an econometric model of residential property prices.
- Uses co-integration and error-correction estimation methodology (keywords: Co-Integration, error correction term, error-correction term coefficient, estimation, estimation result, integration estimation methodology).